AEMO Insights paper: Storage and transmission key to resilience

July 10, 2019

The Australian
Energy Market Operator (AEMO) has released an Insights paper that
provides new perspectives and deeper analysis on the important role pumped
hydro energy storage (PHES) and strategic transmission developments can play in
lowering costs to consumers and increasing the resilience of the National
Electricity Market (NEM).

The inaugural 2018
Integrated System Plan (ISP) articulated the lowest cost and risk transition
pathway for Australia’s energy system. It highlighted the importance of
optimising future investments in new generation and networks while taking full
advantage of new consumer technologies such as rooftop solar, demand response
and electric vehicles. The purpose of this Insights paper is to provide
a deeper analysis into the role of storage, including Snowy 2.0 and Battery of
the Nation (BoTN) projects, and evaluate how storage can improve the resilience
of the system and reduce costs for consumers.

The Insights paper incorporates evolved modelling of storage diversity and weather variability. It finds that when renewable energy availability is low, long-term storage such as Snowy 2.0 and BoTN deliver higher fuel costs savings than short-term solutions. Conversely, shallow developments with six-to-eight hours storage potential are the most valuable in providing intra-day and day-ahead energy shifting, complementing generation from utility-scale and rooftop solar systems. Distributed storage (batteries) with shorter discharge times will also play a critical role, providing value through capacity firming to support the grid at peak times.

“AEMO’s in-depth
analysis confirms the important role of energy storage to build power system
resilience, improve reliability and to put downward pressure on wholesale
costs. An example in the paper outlines that one week’s storage in Snowy 2.0 in
2030-31 saves approximately $86 million more on average in fuel costs, compared
to the equivalent storage capacity with only six hours storage.

“By 2030, wind and
solar generators, including consumer rooftop systems, are expected to represent
approximately 50 per cent of the NEM’s installed generation and storage
capacity, generating over 40 per cent of energy consumed. It is critical we
advance the required transmission infrastructure to support the integration of
these new resources to ultimately deliver secure, reliable and affordable
energy for Australians.”

The Insights paper
identified specific intra and inter-regional transmission investment to connect
pumped hydro storage options with consumers. Within New South Wales, an
increase in the transfer capability of the network between the Snowy region and
Sydney would maximise the reliability and resilience benefits of Snowy 2.0 at
the lowest costs for NSW consumers following the closure of the Liddell Power
Station in 2022.

Inter-regionally,
expanding the transfer capability between the Snowy area, North West Victoria
and Melbourne would maximise the benefits of Snowy 2.0 for Victorian consumers
ahead of any further coal-fired generation closures in the state. The increase
of transfer capability between Tasmania and Victoria could also deliver
benefits, allowing additional renewable generation and storage capability to be
exported to the mainland.

“Transmission augmentations
require significant planning, community consultation, and economic cost-benefit
analysis in the form of the Regulatory Investment Test for Transmission (RIT-T)
to ensure investments are in the best interest of all consumers.

“AEMO is working
closely with the Energy Security Board and fellow market bodies to develop a
package of changes to the National Electricity Rules to convert the ISP into an
actionable national strategic plan. A key objective is to enable projects
identified in the ISP to undergo a streamlined RIT-T and regulatory approval
process that builds on the detailed cost benefit analysis undertaken as part of
the ISP,” Ms Zibelman said.

Energy Networks
Australia welcomed the Insights paper, saying it recognises the importance of
transmission to support our transforming system.

Energy Networks
Australia acting chief executive officer Tamatha Smith said that around the world,
the logical response to growing levels of renewable generation was to create a
more connected system.

“Transmission is
our electricity superhighway and more strategically placed transmission means
more power can reach more customers with greater reliability,” Ms Smith said.

“Coordinated
investments in transmission and interconnections between states will ensure
electricity from new generation can be shared across the National Electricity
Market.

“This will support better reliability
and system security as coal-fired power stations retire and put downward
pressure on wholesale prices, which means lower bills for customers.”

The Energy Users
Association Australia (EUAA) said the report highlights the urgent need to
rethink the way we pay for the transition of our energy system, saying the cost
of rewiring the grid must be shared.

The Energy Users’
Association of Australia (EUAA) is calling on the energy industry, governments,
regulators and customers to collaborate on developing a new cost and risk sharing
framework that will pay for the future energy system.

“Our proposition is, quite simply, that everyone should pay their fair share of the costs and take their fair share of the risk,” EUAA CEO Andrew Richards said.

“While energy consumers
will gain some benefits from these investments so too will a broad range of
other stakeholders including private investors and state governments. It
is both unreasonable and unfair for consumers to continue to pay all the costs,
as they have done traditionally, when they no longer receive all the benefits.”

The findings of this
Insights paper are consistent with the recently released Victorian
Annual Planning Report, which highlighted the growth and geographical diversity
of renewable generation resources shifting away from traditional resource
locations, and in turn presenting strong locational signals for investment.

The 2019-20
Integrated System Plan is due to be released in mid-2020, with stakeholder
consultation ongoing, and subsequent Insights papers to precede this
publication as required.

The complete Insights paper, titled ‘Building power system resilience with pumped hydro energy storage’ can be accessed here.